KBC gets another 2 billion euros in capital

Belgian group to report 2.5-billion-euro loss after more write-downs

By

SimonKennedy

LONDON (MarketWatch) -- Shares in Belgium's KBC rebounded sharply Thursday after the banking and insurance group said it would get another 2 billion euro ($2.6 billion) capital injection from the government and estimated a 2.5-billion-euro annual loss.

The firm said the Flemish regional government will provide the capital boost in a deal that won't dilute existing shareholders and will help the bank maintain its Tier 1 capital ratio at around 10.5%.

In addition KBC
KBCSF, -0.67%
(000356573) has been given access to a 1.5-billion-euro standby facility, which it can draw on to further support capital levels in the future.

Shares in the firm surged more than 40% in early trading. The jump, however, wasn't enough to fully claw back heavy losses in the previous few sessions and the stock has still lost around a third of its value this week.

KBC said the terms of the latest cash injection will be "similar" to those attached to its 3.5-billion-euro support package from the government last year. In that deal it issued preference shares with an 8.5% annual interest rate, though crucially the interest payment was waived if shareholders didn't get a dividend. See archived story.

The annual loss of 2.5 billion euros was driven by another 2.6 billion euros of write-downs in the final quarter.

KBC said it's completely written off the full value of all its collateralized debt obligations, except the so-called super-senior tranches, which have the highest ratings.

That contributed to a 1.7-billion-euro after-tax write-down of the group's credit portfolio. In addition it recorded 700 million euros of impairments on its equity investments and 200 million euros of losses on its exposure to Icelandic banks.

Chief Executive Andre Bergen said the group has taken a conservative stance with its latest write-downs.

"We have also taken decisive measures to reduce costs and to further reduce the risk profile of our activity portfolio," Bergen said.

"The financial position of the group remains solid after we obtained the commitment this morning to an additional non-dilutive capital-strengthening transaction," he added.

KBC's decision to seek further government support came just days after U.K. and French banks also benefited from a second round of rescue packages, including another 10.5 billion euros of capital from the French government and a U.K. move to guarantee bank debt and provide insurance against losses on risky assets. See archived story.

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